There is a danger that employment losses due to the Covid-19 epidemic will become permanent, causing the rate of unemployment to be significantly raised for years to come,
warns a new academic paper published by the Covid-19 economists group.
SA has among the highest rates of unemployment in the world, at 29% on the narrow definition, which does not count as unemployed those who have given up looking for employment. It is also, according to the World Bank, the most unequal society in the world with the biggest disparities between the rich and poor.
Economist Miriam Altman, also a member of the National Planning Commission — a government agency responsible for strategic planning for the country — said the various scenarios, based on the combination of strategies used to fight the epidemic, could see the rate of unemployment rise to between 30% and 37%.
It is imperative that policymakers are alive to these dangers and make appropriate choices to limit long-term permanent output and employment losses, she said.
In the 2008-2009 global financial crisis the SA economy lost 1-million jobs and pre-crisis employment levels were reached again only several years later.
On Sunday, President Cyril Ramaphosa announced that
the country would significantly open up the economy from June 1 to limit the economic damage of the lockdown.
Altman said that a shift from "a centrally regulated approach that controls activity" to one that "enables communities and businesses to adhere to the protocols required to contain the virus", was an essential first step.
This approach is consistent with the approach the government has now taken, where a limited range of economic activities are prohibited, with the rest allowed, dependent on risk mitigation strategies.
However, risk-mitigation strategies — which include "a combination of information systems, testing, contact tracing and isolation, along with physical distancing, wearing of masks and sanitising" – are not sufficient on their own to limit economic damage.
Two other elements are also essential: a deeper engagement with communities to encourage viable social distancing strategies, especially in densely populated areas; and widespread support to all affected businesses and workers to limit the extent of permanent damage.
"It is within our power to limit the damage. A balance can be found between containing the virus and other health, social and economic imperatives in a way that is mutually reinforcing," Altman said.
The four scenarios are modelled on the extent to which the three priorities are applied.
In the worst-case scenario some level of lockdown is in place from April to September, after which it scales down to December. Risk-adjusted strategies, especially in densely populated communities, are not successfully put in place and support to businesses and workers is insufficient.
In this scenario GDP for 2020 contracts by 20% and 3.2-million workers lose their jobs. By 2023, it is clear 1.8-million jobs are permanently lost and the new unemployment rate rises to 37%.
In the second scenario, risk-adjusted strategies are introduced earlier. But too few firms get support and there is significant retrenchment and business failure. Physical distancing in townships is not effectively applied. GDP falls by 15% and 2.5-million jobs are lost. By 2023 it is clear that 0.9-million jobs are lost and the new rate of unemployment reaches 33%.
The third scenario is one in which both risk-mitigation strategies and support for business and employees is effective. While some jobs are permanently lost – about 225,000 and the unemployment rate rises to 30% — the economy returns to pre-crisis levels but growth and employment remain stagnant.
In the fourth scenario, successful risk-mitigation and business support measures are bolstered by economic reforms, put in place as SA weathers the crisis. While there is a similar outcome at first, by 2023 GDP is growing by 2.5% per annum and employment is expanding.
"The best-case scenario presented in this paper really is the best case and will require significant commitment and course correction in Covid-19 policies and in demonstrating commitment to required structural change. The worst-case scenario is not the worst that can happen," Altman said.
"There could be domestic reverberations into the banking sector or more dramatic shifting to reduce labour ratios or political cleavages that deepen as resources become ever
more scarce."
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